Strategic pricing(7 marks)

Online Pharmaceuticals is a wholesaler that specialises in packaging bulk drugs, in standard dosages, for local hospitals. The company has been in business for several years and has been profitable since its second year of operation. Shari Blackwood, the assistant accountant, installed a standard costing system after joining the company three years ago.

Auckland Starship Hospital has asked Online Pharmaceuticals to bid on the packaging of one million doses of medication at total product cost plus a mark-up on total cost of no more than 15 percent. Auckland Starship defines 'total product cost' as including all variable costs of performing the service, a reasonable amount of fixed overhead, and reasonable administrative costs. The hospital will supply all packaging materials and ingredients. Auckland Starship has indicated that any bid more than $0.03 per dose will be rejected. Blackwood has accumulated the following information prior to the preparation of the bid:

Direct Labour

0nline Pharmaceuticals is a wholesaler that specialises in packaging bulk drugs, in standard dosages, for local hospitals. The company has been in business for several years and has been profitable since its second year of operation. Shari Blackwood, the assistant accountant, installed a standard costing system after joining the company three years ago. Auckland WHospital has asked 0nline Pharmaceuticals to bid on the packaging of one million doses of medication at total product cost plus a markup on total cost of no more than 15 percent. Auckland Wdefines 'total product cost' as including all variable costs of performing the service, a reasonable amount of fixed overhead, and reasonable administrative costs. The hospital will supply all packaging materials and ingredients. Auckland W has indicated that any bid more than $0.03 per dose will be rejected. Blackwood has accumulated the following information prior to the preparation of the bid: Direct Labour $24 per direct labour hour [DLH] Variable overhead $12 per DLH Fixed overhead $20 per DLH Incremental administrative costs $2000 for the order Production rate 2000 doses per DLH W Required 6.1: Calculate the minimum price per dose that 0nline Pharmaceuticals could bid for the Auckland Starshipjob without reducing H's profit. (2 marks] Your